Much of the resistance to institutionalized globalization and international financial cooperation and trade has focused on the World Bank, the IMF, and the World Trade Organization (WTO). These institutions, in turn, face a dilemma: how to fulfill the role the international community has assigned to them while at the same time responding to the sometimes conflicting interests between and within member countries. This dilemma was the basis for discussion at the April 4 annual meeting of the Bretton Woods Committee—a U.S.-based bipartisan, nonprofit group organized to build public understanding of international financial and development issues. Participants at the Washington meeting included senior officials from international financial institutions, government officials, and representatives from the private sector and nongovernment organizations.
While acknowledging that some institutional reform—particularly in the areas of openness and fairer representation—is desirable, many speakers emphasized that national governments needed to take a more active role in helping to close the widening gap between rich and poor in their own countries.
What role for the IMF?
“The IMF can hardly complain about not getting any attention these days,” IMF Acting Managing Director Stanley Fischer said, referring to various recommendations for reform that have been made in the past year or so. Reform at the IMF, Fischer noted, is an ongoing process: “continuous” rather than “revolutionary.”
The evolutionary “revolution” continues, Fischer said, as the IMF seeks to improve and extend its activities, including its lending functions. The IMF lends to countries in crisis, to countries trying to avoid crises, and to the poorest member countries. This third group, Fischer said, is controversial, because many critics say the IMF should not be in the poverty business. But, Fischer stressed, the poorest members of the world community belong to the IMF, have the same macroeconomic issues as middle-income and emerging market countries, and have the same right as every other member to access the IMF’s facilities. Helping countries achieve and maintain stability is the business of the IMF, Fischer said, but these efforts are doomed to failure if programs supported by the IMF ignore the fact that poverty is the main problem confronting these countries. The IMF’s newly constituted Poverty Reduction and Growth Facility, therefore, puts poverty reduction, along with growth, at the center of IMF programs. Under this strategy, the IMF, working with the World Bank, ensures that the macroeconomic policy framework a country develops with IMF assistance is fully consistent with what needs to be done in the social sector.
The IMF and the World Bank lack a viable political constituency in the United States, and especially in the U.S. Congress, according to Timothy Geithner of the U.S. Treasury. Globalization can work for the economic good of developing and industrial countries alike, Geithner said, but drumming up popular support for the “global” institutions remains a problem. Any reform of the IMF must recognize its core functions, he said, which include preventing financial crisis, promoting sound economic policies among its members, and providing support for poverty reduction programs.
According to U.S. Congressman Barney Frank, the growing resistance and hostility, especially in the United States, to free trade and globalization reflects to some extent the collapse of the consensus on behalf of U.S. participation in the international economy and freely moving capital that prevailed from the late 1940s up until the late 1980s. On the right, efforts to use foreign aid and trade opportunities to recruit allies against hostile external forces have disappeared with the collapse of communism. On the left, early optimism about the universal benefits of globalization has dissipated as some segments of the population have found themselves on the losing end.
Rebuilding the political constituency that will support the efforts of the international financial institutions requires action on both the domestic and the international level, Frank said. On the national level, directly addressing the unequal income distribution within the United States, he maintained, is a good way to build support for globalization. Safety nets need to be provided for those people who are not participating in the new economy. On the international level, the IMF should continue to stress that its new focus on poverty reduction is a direct goal of the economic programs it supports rather than an indirect result of growth-oriented macroeconomic policy reform.
Speaking as a representative of an emerging market economy that has benefited from IMF financial assistance, Carlos Noriega, Deputy Minister of Finance and Public Credit of Mexico, said that several “myths” about the IMF need to be debunked. Far from having outlived its usefulness, the institution’s near-universal membership provides opportunities for economic growth and improved standards of living for all countries, particularly poor countries that lack access to private capital markets and other forms of bilateral financial assistance. Further, without the IMF’s crisis prevention and resolution functions, periodic financial convulsions in the markets could permanently disable smaller, weaker players and lead to a long-term disruption of the international financial system. The new focus on poverty reduction, along with growth, as the central element in IMF-supported programs demonstrates the institution’s ability to change and adapt; the enhanced cooperation between the IMF and the World Bank on debt and poverty-reduction initiatives that take into account social and macroeconomic considerations argues against calls for greater lines of demarcation to be drawn between the two institutions.
Multilateral development banks
Recent calls for cutbacks in the lending and development activities of the multilateral development banks, especially the World Bank, threaten the growth prospects of much of the developing world. Moreover, according to Robert Hormats of Goldman Sachs, what happens in poor countries has an effect on the U.S. economy. There is a need for an “internal debate,” he said, to show the domestic consequences of withholding financial aid and assistance to poor countries. For example, lack of basic health care and disease prevention could mean the spread of infectious diseases and viruses across continents, while global terrorism often has it roots in intense economic dissatisfaction at home. Hormats said complacency about the U.S. and world economies has “shut our eyes to the real risks to which we remain vulnerable.”
In the next 25 years, the world’s population could top 8 billion, a rise of 2 billion, more than half of whom will be living in poverty, James Wolfensohn, President of the World Bank, noted. New approaches to development assistance from the multilaterals are needed to meet this challenge, including basing growth and development on sound macroeconomic and structural policies. This comprehensive approach, Wolfen-sohn said, depends on cooperation among the regional and multilateral development banks and the IMF.
A comprehensive approach is also needed in Latin America. Enrique Iglesias, President of the Inter-American Development Bank, cited the still considerable roadblocks to development in Latin America: low growth, external imbalances, and large income inequalities.
Cooperation among international financial institutions, including multinational and regional development banks, is also crucial for development. Peter Sullivan, Vice President at the Asian Development Bank (ADB), noted that much of the remarkable recovery in Asia from the crises of 1997-98 was due to a cooperative effort that succeeded in helping to put Asia back on the road to growth. Nevertheless, poverty is still widespread in many parts of Asia, and the region will continue to require assistance from the World Bank to tackle governance issues and institutional and structural weaknesses. Like the other regional development banks, Sullivan said, the ADB would suffer if the activities and scope of the World Bank were cut back.
Globalization: threat or promise?
Globalization is inevitable and can bring benefits to many. But, at the same time, national and international institutions need to assume responsibility for all segments of society—not just the beneficiaries of globalization. These were the main conclusions reached in a final discussion, moderated by Bill Frenzel of the Bretton Woods Committee. Renato Ruggiero of Salmon Smith Barney and former Director General of the WTO said that the current backlash against globalization was troubling, but did not presage a return to isolationism and closed economies. In fact, as Heng Chee Chan, Singapore’s ambassador to the United States, noted, none of the crisis-affected countries in Asia had turned its back on the free market. But they know they are vulnerable and that contagion effects can be devastating. Globalization, she said, is inevitable, but supportive policies are not.
David Beckmann of Bread for the World, a nongovernmental organization, emphasized the importance of building a domestic political constituency to support the poverty alleviation and development efforts of the multilateral institutions. We need “grass roots” and “brass tops,” he said.
Governance is an international system, with its own logic, that will affect every country and business, according to Thomas Friedman of the New York Times and author of The Lexus and the Olive Tree: Understanding Globalization. Open, free trade is essential for growth and development, he said, but “globalizers” need to bring along the “have-nots, the losers, and the left-behinds,” or the political backlash will be fierce and disruptive. For the globalization system to operate efficiently, therefore, society and government need to find an equilibrium between social safety nets and integration.
Ian S. McDonald
Senior Editorial Assistant
Art Editor/Graphic Artist
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